My family depends on farms and the farm economy, and Trump’s tariffs are hitting them hard. They lean Republican, but that could change by harvest time.
On a recent road trip to the homestead farm in Indiana for a family reunion, I had the opportunity to view up close the corn and soybean crops this year. There is an old saying that the corn should be “knee high by the Fourth of July.” By that metric, this should be a bin-busting harvest season. Recent Agriculture Department production reports confirm that, subject to the vagaries of weather in the remaining days of the growing season, 2018 will be a banner year.
Agricultural interests make up my family’s lineage, and this should have been a time for celebration in the country’s breadbasket. But as usual at family gatherings, talk turned to politics, specifically the president’s trade policies. My relatives’ anxiety permeated an otherwise enjoyable, sunny day in the heartland. Of particular concern was the impact of President Donald Trump’s trade war with China on the soybean market.
First, some facts. U.S. agricultural exports will reach nearly $143 billion this year, exceeding our food imports by more than $20 billion annually. In other words, when it comes to the trade deficit that the president focuses on relentlessly, the agricultural sector actually runs a surplus — not a deficit.
As recently as 2014, the U.S. agricultural trade surplus was $43 billion. But increasing crop production worldwide, plus a strengthening dollar, is making it difficult for American farmers to expand their historical market share of exports. A trade war will only add uncertainty to the future of agricultural trade.
Farmers don’t want welfare payments
The largestimporters of U.S. agricultural products last year were Canada, China, Mexico, Japan and the European Union. These five markets purchase nearly 60 percent of all U.S. agricultural exports.
U.S. imports of agricultural commodities, however, are led by Canada, Mexico, the EU and Australia. We imported less than $5 billion in food products from China while exporting $20 billion to them. It’s somewhat astonishing, but more than 75 percent of U.S. agriculture’s trade surplus is the result of China buying $15 billion more in food products from us than we buy from them.
Not surprising then that my Midwest farm family would be concerned when China lowered its commitment to buy 366,000 metric tons of U.S. soybeans from this year’s bountiful crop and 66,000 tons next year.
This action along with Chinese retaliatory tariffs of 25 percent on soybeans, applied in response to Trump’s $34 billion in tariffs on Chinese products, has roiled the cash market for soybeans. In late May, the spot price for soybeans was $10.41 per bushel. The price had tumbled 20 percent to $8.31 per bushel by July 16.
As political concerns rise in the heartland over the tariffs and their depressing impact on the farm economy, the administration is having second thoughts. But rather than doing away with the market-distorting, commodity price-depressing tariffs, it has now decided to tap the Depression-era, government-run Commodity Credit Corporation.
American farmers would effectively be put on the government dole (at the expense of the taxpayer) to the tune of nearly $12 billion. They do not want government welfare payments. Today’s farmers are high-tech, sophisticated, professional business people. They want to compete in a global market where they will win. Trade wars produce no winners.
My widely dispersed family also includes a successful businessman in the California Central Valley agricultural district. His company builds commercial, industrial and agricultural facilities using pre-engineered steel building systems. The agricultural market is a big component of his business plan in an area where farmers need processing plants, warehouses, cold storage buildings and wineries. The buildings are used for tomatoes, cherries, apples, walnuts, almonds and even wine production — products exported abroad. He must plan ahead and manage his construction projects with an eye on both the domestic and global market.
Some of the steel used in the production of the building systems is imported. The president’s 25 percent tariffs on imported steel and 10 percent on aluminum will increase the cost of construction of my brother’s buildings.
At the same time, his clients who produce perishable agricultural foods are facing market issues similar to the soybean farmers in the Midwest. Their fruits and vegetable exports are facing higher tariffs and thus a decline in demand. One client had established a new business relationship to export wines to China and has had orders canceled. Reduced demand and decreased production mean less available income to purchase the steel facilities that have climbed in price because of the tariffs.
Trump policies create damaging uncertainty
Worse overall for builders, commodity producers, consumers and ultimately workers is the uncertainty that permeates their businesses due to the real and future threat of tariffs. How is one to develop a successful business plan amid the uncertainty caused by the trade policies emanating from Trump and his team? They are already resulting in a sharp deterioration in business expectations, according to the latest University of Michigan survey. It is a vicious cycle.
Here’s one history lesson from the corn fields. In England in 1846, it was the conservative leader Robert Peel who abolished the Corn Laws that provided subsidies to English land barons and kept corn prices high to guard against imports of cheap foreign grain. The conservative argument that free trade was in the national interest won the day.
By contrast, the Trump administration must have known that its tariffs would be disruptive and that it would have to consider federal subsidies.
The president’s trade policies affecting the farm economy cut against the grain of most agricultural producers. Farmers tend to be conservative and vote Republican. They want limited government involvement in their business and to be free to do what they do best — produce food to feed not only Americans but the world. My family reunion leans slightly Republican, but I am not certain it will still be that way come harvest time in November.
G. William Hoagland is a senior vice president at the Bipartisan Policy Center and a former staff director of the Senate Budget Committee. Follow him on Twitter: @billhoagland
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